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Plan B: Launch a green new deal

Dear Chancellor,

How do you move to Plan B from where we are: an economy buried in debt by the City of London and starved by your "austerity" policies? One that will not recover, as I have long argued, because vast private-sector debts and the near-insolvency of the banking system have not been addressed - and because the government will not step in and spend on the scale necessary to revive the private sector.

Lessons have not been learned. Austerity is the wrong remedy for the disease of ongoing financial breakdown, excessive private debt and private-sector paralysis. It won't fix the broken banking system, which starves the real economy of credit, leading to falls in output, bankruptcies and job losses. Austerity is a "diet" that worsens government deficits, because it is based on a ludicrous optimism about the conditions and motivations of the private sector. It's no wonder that the financial markets are fearful of the consequences.

We know from the experience of the 1930s that the only way to restore health to an economy weakened by the breakdown of the private banking system is for the government to step in with an expansionary fiscal strategy and a programme of public works.

When the banking system is broken and the private sector stops spending, only the public sector and the central bank can intervene as spenders of last resort.

This spending should be financed neither by taxation nor by borrowing from foreign capital markets, but by the Bank of England. Just as banks were bailed out by quantitative easing from the central bank, so the wider economy should also be bailed out by the central bank.

An expansionary fiscal strategy today will do what it did then: revive the private sector, lead to job creation and return profits and income - with which debts owed to the banks could be repaid. Profits and income (salaries and wages) will in turn generate tax revenues for the government to pay down public debts.

At a time when Britain's national security is threatened by global financial meltdown, soaring unemployment, the rising cost of energy and extreme weather events, public spending must be aimed at tackling these threats.

We need public works programmes that will mobilise a "carbon army" of "green-collar workers" and offer major incentives to environmentally friendly businesses.

Britain's buildings are responsible for 40 per cent of the nation's toxic emissions. The need for a countrywide insulation programme to improve energy efficiency in 24 million leaky household units is urgent. We should refurbish buildings in a city the size of Nottingham every month - 50,000 teams working on each building for a two-week period and keeping that rate up, non-stop, for the next 250 months.

Second, we need a programme to transform every building into a mini power station, to save on energy transmission leakages between power stations and buildings. These programmes will provide high-skilled jobs in energy analysis, design and hi-tech renewable alternatives. There will be jobs and profits in large-scale engineering projects, such as combined heat and power and offshore wind. Lower-skilled work will include loft lagging, draught stripping and fitting energy-efficient systems in all UK homes, offices and factories.

This Plan B - a proper "green new deal" - addresses the main threats to the UK economy, energy and environment. We elect the government to defend our national security. To do so, it needs to be willing to finance such a plan B.

Ann Pettifor is director and co-founder of the think tank Prime (Policy Research in Macroeconomics). The Times called her “a member of a select club: the seers who saw it all coming"

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This article first appeared in the 17 October 2011 issue of the New Statesman, This is plan B